Daily Brief: PayPal Might Just Have Outsmarted Its Buy-Now-Pay-Later Rivals

Daily Brief: PayPal Might Just Have Outsmarted Its Buy-Now-Pay-Later Rivals

over 2 years ago3 mins

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PayPal announced this week that it would buy Japanese buy-now-pay-later startup Paidy for $2.7 billion, and the US payment platform is good for it. Honest.

What does this mean?

PayPal started offering its own buy-now-pay-later service last year, and customers have since used it to make $3.5 billion worth of purchases. This deal, then, comes as part of the company’s longer-term plan to push further into the industry. And where better to take the next step than Japan: the Holy Grail of aspirational payment services is both home to the world’s third-biggest online shopping market, and a place where nearly 75% of all in-person purchases are made in cash. That makes it one of the few developed countries where notes still have the edge on digital payments, and means Paidy – which already has 6 million users – has plenty of room left to grow.

Select few

Why should I care?

For markets: Competition is kicking off.

Buy-now-pay-later companies can’t seem to put a foot wrong these days, with the market more than tripling in size in 2020 amid the pandemic-fueled ecommerce boom. And things aren’t showing signs of slowing down: Square agreed to buy Aussie buy-now-pay-later firm Afterpay for $29 billion just last month, while Sweden’s Klarna – now Europe’s most valuable startup – saw its valuation quadruple between September and June to hit $46 billion. But that kind of money draws a crowd, and this once-exclusive club is only going to get a whole lot busier…

US payment solutions

For you personally: Buy now, pay… now?

Not everyone is delighted with the craze, mind you: regulators are worried that customers are forgetting the “pay later” part of the deal and racking up a pile of debt. And if the companies themselves don’t start doing more to prevent that from happening, those regulators might be more than happy to step in and roll out some profit-damaging measures of their own.

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The British Government Is Planning To Raise Taxes

UK image

The UK announced plans this week to raise the country’s taxes, as its government tries to survive the morning after the pandemic-fueled night before.

What does this mean?

Governments around the world had to dig deep when the coronavirus outbreak brought their economies to a halt last year, and the UK’s was no exception. Now, though, those chickens have come home to roost, and the country has announced plans to raise taxes on its workers. The plan is yet to be approved, but if it is, it’ll add up to one of the biggest influxes of tax revenue as a percentage of the country’s economic output in its history. It’d still leave the UK with a lower tax rate than most other advanced economies, mind you…

Tax burden
Source: Bloomberg

Why should I care?

For markets: The UK tests the water.

It’s true that tax hikes will bring in some much-needed revenue, but they’re risky too. The move will leave Brits with less disposable income to spend when they’re out and about, which could slow down the all-important economic recovery. Other governments’ eyes, then, will be on how it plays out for the country, especially in Europe – which has said it’ll keep pumping money into its own economy until 2022 – and in the US. Investors are particularly worried about how any tax hikes could affect the latter, and – spoilers – Morgan Stanley and Citibank aren’t optimistic: they just downgraded their outlook for the country’s stocks for the rest of the year.

Scaling back
Source: Bloomberg

Zooming out: Diamonds aren’t forever.

Less disposable income means less money to spend on life’s little luxuries, which could spell trouble for De Beers. And the diamond mining and retail company was on such a roll too: it reported on Wednesday that it’s on track for its best year since 2016, as stuck-at-home shoppers with money to burn opted to spend it all on a bit of bling.

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